Brexit and EU Referendum Dropping Sterling Dramatically
The people of Britain voted for a British exit or “Brexit” Clearer Picture Will See Sterling selling return.
The sharp pound sterling selling has paused for now, but it could return in the autumn once it is clear who the next Conservative leader and Prime Minister is and how Brexit negotiations will progress, says Audrey Childe-Freeman, founder and chief strategist at FX Knowledge. Real-money, or longer term investors, will also wait to see surveys and data that reveal how hard Britian’s vote to leave the EU is hitting the economy. “We could be setting up for quite a shaky autumn period,” she says. “We will have another wave of sterling weakening when we see numbers out of the U.K.” Weak data will come at around the time the new Conservative leader is announced in September, she adds.
Scope For GBP Rally to “Dissolve”.
GBP/USD trades up 1.2% in a recovery from hefty selling in the wake of the U.K. referendum vote to leave the EU last week, which took it to a 31-year low around $1.3100 on Monday. But Jane Foley of Rabobank strategists cautioned investors “at the risk of failing to face up to the severity of the issues of politics and economics is now facing the United Kingdom.” “There is plenty of room for the current round of short-covering in the GBP to dissolve fast.” Rabobank expects GBP vs Greenbacks to “drop sharply” in the weeks ahead, taking it to $1.2400 in three months. Lena Komileva, chief economist at G+ Economics, echoes this, saying the market risk “under-estimating the political obstacles to a smooth transition of the U.K..”